Detroit eyes layoffs, other steps to avoid state control

DETROIT (Reuters) - Under pressure from Michigan’s state government to turn around Detroit’s finances, city officials said on Friday they will lay off hundreds of workers in addition to putting others on unpaid leave to stave off increased state oversight.

Detroit Mayor Dave Bing outlined plans to lay off 400 to 500 employees over the next two to three months in all non-revenue generating departments, including police and fire. He also reiterated plans to put more city workers on unpaid leave.

Bing said financial recovery for Detroit would be unlikely this decade, and he did not rule out the possibility of a state-appointed emergency financial manager or bankruptcy even as he emphasized that he would not support those measures.

“I’m a realist and I know that could in fact happen,” Bing told reporters in downtown Detroit. “But I’m also a fighter, so I haven’t given up.”

Frustrated by the slow pace of reform and worried about the city’s long-term viability, Michigan’s Treasury Department said this week that it would start a review process that could lead to an appointment of an emergency financial manager to oversee Detroit’s finances.

Detroit avoided such an appointment earlier this year by signing a consent agreement that gave the state some oversight. However, Bing and the nine-member city council have been at odds over some of the measures the mayor and state officials believe will lift Detroit out of its fiscal hole.

Bing said he would urge council members on Tuesday to approve several conditions tied to reforms that state officials want in order to release $30 million of bond proceeds for Detroit’s near-empty coffers.

One of those conditions is a contract with law firm Miller Canfield to deal with issues related to the consent agreement. The council rejected that contract last month, citing concerns over potential conflicts of interest by the firm and the validity of the contract.

“I’ve taken things to city council over time and they’ve not been able to respond as fast as I’d like them to so we can start an implementation plan,” Bing said. “What I’m frustrated with is we’ve not been able to change the trajectory.”

Detroit, a city of 700,000, has been hard hit by a steep population decline, years of severe budget deficits, and escalating employee costs, all of which led state officials to begin an intervention process a year ago.

Appointment of an emergency manager to oversee the city’s finances would bring Detroit a step closer to a possible bankruptcy filing.

The city’s path to fiscal restructuring has been clouded by confusion over state emergency manager laws.

Last month, Michigan voters overturned a 2011 law championed by Republican Governor Rick Snyder that gave emergency managers more power, including the ability to amend unionized labor contracts under certain conditions.

Cities and districts in Michigan with emergency managers now operate under a 1990 state law, which stipulates that an emergency manager is a prerequisite for a municipal bankruptcy.

This week, a proposed law surfaced in the Republican-controlled Michigan House that would give elected officials a range of options to deal with fiscal emergencies, including municipal bankruptcy if approved by the governor or appointment of an emergency manager. The bill has Snyder’s backing.

Additional reporting and writing by Karen Pierog in Chicago; Editing by Dan Grebler